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by the taxpayer in carrying on the activity; (4) the expectation
by the taxpayer that the assets used in the activity may
appreciate in value; (5) the success of the taxpayer in carrying
on other similar or dissimilar activities; (6) the taxpayer’s
history of income or losses with respect to the activity; (7) the
amount of occasional profits earned by the taxpayer, if any;
(8) the financial status of the taxpayer; and (9) elements of
recreation or personal pleasure in the taxpayer’s carrying on the
activity.
Although no single factor is conclusive, a record of
substantial losses over many years and the unlikelihood of
achieving a profit are important factors bearing on whether the
taxpayer had a profit objective in carrying on the activity.
Golanty v. Commissioner, supra at 426; sec. 1.183-2(b)(6), Income
Tax Regs. Generally, the profit-objective test looks for a
profit on the entire activity, including profits to recoup losses
from prior years. Golanty v. Commissioner, supra at 427 (citing
Bessenyey v. Commissioner, 45 T.C. 261, 274 (1965), affd.
379 F.2d 252 (2d Cir. 1967)).
Substantial income from sources other than the activity,
particularly where the activity generates large losses that
result in substantial tax benefits, may indicate that the
activity is not engaged in for profit, especially if the activity
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Last modified: May 25, 2011